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A Method for Measuring and Partially Testing "Charitability", 3 of 3 partsSome ComplexitiesPublished: August 06, 2007 || Availability: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. © TAX ANALYSTS. Reprinted with permission. The text below is an excerpt from the document. The entire publication as well as Part 1 and 2 are available in PDF format. AbstractFollowing up on the suggestion that it is possible to test “charitability” by using a balance sheet approach to identify how these donors and recipients match up, this article examines two additional complications – past charitable contributions and transfers from government. It concludes that reconciling sources with uses of charitable transfers offers one very useful way for an organization to perform an assessment of the extent of its charitability and that the method could also be employed for accountability purposes by donors, watchdog groups, or government, if used judiciously. Third of Three Parts: Some ComplexitiesIn this series so far, I have suggested that it is possible to test "charitability" — at least in terms of transfers of resources from some class of donors to some class of recipients — by using a balance sheet approach to identifying how those donors and recipients match up. After all, they should be equal in size. Now I will examine two additional complications — past charitable contributions and transfers from government—and then conclude by reexamining some of the objections to the approach I have suggested. Net Worth Deriving From Past Charitable Transfers Not all financial and labor contributions are transferred immediately in the year given. Often some amount of financial, real, and labor charitable inputs yield a surplus that is saved by a charity — providing assets and income that can be used later for charitable purposes. Current charitable uses of funds may then derive from those past charitable sources of funds. Take the case of a private foundation that pays its staff market wages and its board members market-type compensation. If the foundation also receives no new charitable contributions and has no volunteer labor, then in this example it has no current sources of charitable transfers. By all accounts, it is a charity, but I still contend that applying the balancing exercise would help give it some clue as to the extent of its charitability. Is it only the past charitable contributions that give it that status? Does anyone provide any additional source of transfers (through contributions of time, effort, or work at below-market wages)? Do some people get more than market compensation and essentially decrease the charitable output of the organization? Indeed, the great danger faced by an organization with built-up net worth is that it is quite possible for its staff and board to currently provide negative charitable value added, even though there are positive current transfers. Continue with the case of the private foundation presented above, only now add the assumption that it pays some of its staff more than market wages, perhaps because friendly boards want to pay extra to some top officers, perhaps because the foundation represents nothing more than a publicity front by a sports or media star who turns around and uses the assets mainly to pay relatives to run it, or perhaps simply because it is run inefficiently, using the endowment to protect workers who could not so easily get as high a wage for their efforts elsewhere. (End of excerpt. The entire publication as well as Part 1 and 2 are available in PDF format.) |
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